CICC said in a research note that, from the perspective of preserving the Federal Reserve’s credibility, the Fed would be better off raising rates in September, calling that the key factor in the decision. The note said the "deliberate ambiguity" from Waller at the July Federal Open Market Committee, or FOMC, meeting threw market expectations into disarray. It added that the U.S. Treasury term premium rose from 0.65% at the end of July to 0.9% in mid-August, which in CICC’s view forced Waller to make a hawkish commitment at the Jackson Hole conference. According to the note, the Fed may still have some room to maneuver if incoming data weakens. But with nonfarm payrolls and inflation coming in above expectations one after another, the central bank has been pushed into a tighter spot. CICC also said that while these short-term indicators have their limits, they are still the main reference points ahead of the next FOMC meeting. If the Fed still chooses not to hike, the note warned, markets may question its earlier hawkish messaging and that could trigger a deeper credibility problem and a loss of control in the Treasury market. The item was cited by Jin10 via Odaily.
Odaily reported that China International Capital Corporation, or CICC, said in a research note that the Federal Reserve would be better off raising rates in September if its priority is to preserve credibility, and that this is the key issue in deciding whether to hike.
The note said Waller’s "deliberate ambiguity" at the July Federal Open Market Committee meeting left market expectations in confusion. It also said the U.S. Treasury term premium climbed from 0.65% at the end of July to 0.9% in mid-August, which in its view forced Waller to make a hawkish commitment at the Jackson Hole conference.
CICC said the Fed may still have room to adjust if data weakens. But as nonfarm payrolls and inflation have continued to come in above expectations, the central bank has gradually been pushed into a corner. The note added that, while these short-term indicators all have limitations, they are still the only data points policymakers can rely on before the FOMC meeting.
It said that if the Fed still "forcibly chooses not to hike" at this meeting, markets may question how to interpret its earlier hawkish remarks. In CICC’s view, that could lead to a more serious credibility crisis and a loss of control in the U.S. Treasury market. The report cited Jin10.
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